Apple's Biggest Advantage in Smartphones

Google (NASDAQ: GOOGL  ) has built quite a popular platform with its Android OS for mobile devices. The operating system is on nearly 80% of smartphones sold worldwide. Microsoft's (NASDAQ: MSFT  ) Windows Phone is moving in the right direction, but still has just 3.7% market share.

Meanwhile, through the first half of this year, Apple (NASDAQ: AAPL  ) commanded just 13.2% of the global market, down from 16.6% at the same time in 2012. Many believe this trend will cause developers to start focusing on Android first.

Source: Nerds on Call.

They're wrong.

Look at the U.S.
The iPhone does especially well in the United States, where most innovative mobile start-ups originate. Kantar's latest report showed Apple has a 43.4% market share in the U.S., and the latest iterations of the iPhone doubled the company's sales share in the U.S. month over month in September.

Indeed, the iPhone is still extremely popular in the most important country for app developers. Not only do most apps originate in the States, many are focused on the U.S. because we spend money. Not only are we willing to pay for apps, advertisers are willing to pay app developers more for American eyeballs.

Still, the majority of Americans with a smartphone have an Android in their pocket. That still doesn't mean developers will make Android a priority.

Return on investment
The Android market is segmented. The Windows Phone market is too to some degree. But there's only one iOS phone.

The cost of development is significantly lower for an iOS app than it is for an Android app. Android development costs stem from a multitude of sources, but perhaps most important, is quality assurance issues, brought on by the plethora of phone models running Android. iOS developers don't need to worry about that.

More importantly, developers will be looking at their potential return on investment. Even if the costs were the same to develop an app for iOS, Android, or Windows Phone, iOS would still be the primary focus of most app developers.

American iPhone owners are the creme-de-la-creme of smartphone users. Despite Android owners outnumbering them, their combined worth for app developers is significantly more than the Android majority. The amount of money flowing into iOS apps significantly outpaces that of Android apps.

A recent study by Nanigans found that Facebook ads on iOS brought in 6.1 times the amount of revenue and were 17.9 times more profitable compared to Android ads. So, Android CPC rates are about half that of iOS rates. The gulf is bound to grow wider too, as most Android ads have a negative ROI.

In other words, an iOS download is worth twice as much to a developer and worth 17.9 times as much for its advertisers. This is evident in the fact that despite 10% more app downloads in the Google Play store compared to iTunes in the second quarter, the iTunes app store brought in 2.3 times as much revenue.

Developers will flock toward the money. That's what they're in this for after all.

What about Windows Phone?
It takes about a year to 18 months to develop and release an app for a new platform. That pattern is quite evident in the case of Instagram, which took almost 18 months to release an Android app and another 18 months to release a Windows Phone version. That's despite the fact that Nokia's Lumia phones are generally regarded as the best camera phones.

Unless Microsoft gives developers an incentive to develop for its mobile platform, its app ecosystem is likely to stay two to three years behind that of Apple's. Without the latest apps, it will be extremely difficult for the company to grow its market share, creating a vicious cycle.

Can't be beat
As much as Apple bears like to bad talk Apple's diminishing market share, it's important to remember hardware is only half the battle. Apple's priority in the app ecosystem will ensure it maintains a strong market share in its most profitable markets.

Additionally, the propensity for iPhone owners to spend more on apps means Apple is bringing in more revenue through its iTunes app store per phone sold. This is Apple's biggest advantage in smartphones, and it's not going away anytime soon.

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Read/Post Comments (6) | Recommend This Article (2)

Comments from our Foolish Readers

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  • Report this Comment On October 23, 2013, at 8:42 PM, zippero wrote:

    Great article, Adam!

  • Report this Comment On October 23, 2013, at 9:00 PM, petergreyhill wrote:

    Apple's biggest advantage in Smartphones is their rapidly shrinking global market share ?

    How does that work, exactly ? I am confused.

    Is that why cook is considered brilliant ? losing many years' worth of global market share faster than any other ceo in history ?

    Is that why apple's long term strategy is considered brilliant ? the faster apple loses market share the more brilliant they become ?

    Cook did say "the competition is confused " and he is correct. Samsung is probably trying to figure out why cook is handing over market share with his hands in the air, like he just doesn't care ....even his competitors expect better of him.

  • Report this Comment On October 23, 2013, at 10:09 PM, vernr75 wrote:

    Wow. Pure wishful thinking at its best.

    You couldn't be more wrong. Right now, only 36% of all Android apps are now created by developers from the US and that percentage is falling rapidly by the year. The same goes for iOS apps to some degree. Android users are going to at least triple in size within a few short years so there will be at least 3 billion Android users worldwide by 2017. There's no way that as many as a billion people will ever buy iPhones and there's no way that iOS will ever get the kind of homogeneous global distribution that Android is already enjoying. The bottom line is this - US developers are no longer in control of Android's app future so you can kiss your theory goodbye.

    With iOS fading in market share as Android becomes the defacto mobile platform used in almost every country, it will be local apps generated in each country - NOT US app creation - that cements Android as the must-have platform for the masses outside the US once billions have acquired an Android smartphone. How many people outside the US do you think are going to willingly waste money buying an iPhone while their local banks and a large number of other local businesses and institutions are pushing out apps for their local population based on current local platform usage stats? No one is going to waste time and money porting to the iPhone if the iPhone only enjoys single digit market share in their country while Android and Windows Phone dominate it completely.

    That's why iOS need the market share no matter how much money Apple is making now. You can't buy global relevance and you can't buy local relevance. If iOS remains too small a platform within each of the more than 200 countries out there and if Windows phone becomes the number two platform outside the US, those critical local apps that make smartphone platforms sticky will not be ported to iOS. It doesn't matter how many different fart apps you have. What does matter is your mobile phone can run the service apps and other local apps generated within each country that make owning a smartphone worthwhile. For example, in China, local apps are already far more important to the Chinese people than anything coming out of the US market. According to Flurry, only about 16% of the time is spent using an app made in the US while Chinese apps are in use 64% of the time. That would explain why over 42% of all the iPhones in China are currently jailbroken to run apps not on Apple's app store. These Chinese apps that were initially ported to iOS back when the iPhone was the phone to have are now making their way unto Android, and with Android becoming the primary platform in China, it's just a matter of time before iOS users in China begin to feel increasing amounts of local neglect as Android becomes the priority. I've even heard of another developing country where a widely read local newspaper recently created a mobile app for Android and for Blackberry but not iOS. They prioritized based on their local usage stats and Blackberry turned out to be far more popular than the iPhone in their territory. Now picture this scenario playing out a thousand more times in that country and what you get is an iOS platform that is locally useless compared to Android...and to Blackberry!

  • Report this Comment On October 23, 2013, at 10:45 PM, deasystems wrote:

    Another one who didn't read the article. You should try it sometime, vernr75…

  • Report this Comment On October 23, 2013, at 10:58 PM, babushnik wrote:

    apple has never been focused on market share... they are focused on being focused... doing a few things really well... watch the keynotes from apple...

    this is how apple has become the biggest company in the world (without selling the most stuff)... the competition is fierce... so... the consumer wins :)

  • Report this Comment On October 24, 2013, at 9:07 AM, KingFingerJr wrote:

    As an app developer myself, I do not wish to go develop apps on android yet due to its nature. plus, people can get the apps for free without buying by downloading the cracked ones online. Surely this turns a lot of developers off.

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